Solar startups innovate around financing models

Exchanges where companies and investors can buy and sell renewable energy credits has helped to boost solar in states such as New Jersey. And the idea has now enticed a San Francisco, venture capital-backed startup, Clean Power Finance, to adopt the model to launch a new type of credit trading service to fund home solar roof projects.

Clean Power Finance already offers other financing products for solar developers to use to pay for installing solar panels. But with the new service, installers or project investors who need financing can sell the renewable energy credits associated with their projects to Clean Power Finance to help fund future projects. Clean Power Finance then sells those energy credits to customers, such as utilities, who use the energy credits to meet their renewable energy goals. The startup is acting as sort of an energy credit broker.

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Clean Power Finance is moving ahead of some of its venture-backed rivals by entering the credit trading market. As the solar market grows and matures, it will see more players offering a greater range of financial products or creating new ones. SolarCity, for example, is working on aggregating solar leases to create asset-backed securities, which will then be sold to investors.

Solar energy credit trading plays a key role in boosting solar generation in states such as New Jersey and Massachusetts. These states require their utilities to buy an increasing amount of renewable electricity, and they allow the utilities to buy the energy credits as an option to meet the mandates.

New Jersey, in particularly, has become the No. 2 market in the country, after California, and it was home to the more new installations than any other states during the first quarter of this year. Other active solar energy credits trading markets include Pennsylvania, Delaware and Maryland.

The availability of solar leases has driven the growth of the residential solar market in the U.S. Homeowners who opt for leases can reduce their share of — or eliminate — the expensive, upfront cost of the solar energy equipment and installation and pay a monthly fee instead for solar electricity. Clean Power Finance, along with rivals such as SolarCity, SunRun, Vivint and Sungevity go out to raise money from banks or other investors to fund the leases.

Not everything always goes smoothly with this emerging economy for trading renewable energy credits. New Jersey offers a cautionary tale of an energy credit market spinning out of control. The state saw a great demand for energy credits that pushed up the prices for them to over $600 each a few years ago. That created a rush of project development, which then flooded the market with too many energy credits for sale. Prices plummeted to a quarter of that value toward the end of 2011. A similar crash also happened in Pennsylvania. The low prices forced the developers to drive down the cost of their projects.

New Jersey decided the way to fix that problem is to tell its utilities to buy more solar power. It recently amended its solar legislation to do just that.

Clean Power Finance also offers software for installers to manage their sales process. The company is backed by venture capital firms such as Kleiner Perkins Caulfield & Byers, Clean Pacific Ventures and Claremont Creek Ventures.